SMARTPHONES: Apple CEO Caught in Hard Place in US-China Tensions

Bottom line: Apple's Tim Cook and other big
global CEOs active in China will need to walk a fine line to avoid
being forced to take sides in ongoing US-China trade
frictions.

Apple (Nasdaq: AAPL) CEO Tim Cook was in China once
again this past weekend, in what seems to be becoming his second
home. This time around Cook was one of the few corporate chiefs
attending the China Development Forum, a major annual conference
sponsored by China's State Council. The event is mostly peopled by
academics and government officials, and thus Cook's attendance is
both a feather in Beijing's cap and also something of a nod to
Cook's own status as a global high-tech titan as he tries to stay
in the nation's good graces.

His major proclamations at the event weren't all that
earth-shattering. But he inevitably felt compelled to comment on
the Donald Trump administration's announcement last week of new
punitive tariffs on China for unfair trade practices. He didn't
venture too far into the matter, and mostly urged both sides to
stay calm in the face of rising trade tensions between the world's
two largest economies.

None of this is too surprising, since Apple has a huge amount at
stake in this particular issue. Its biggest global market is the
US, while it makes most of its products in China. What's more,
Greater China is also one of its largest markets, accounting for
about one-fifth of its sales in its latest reporting quarter, or
about $18 billion to be exact.

So how does one of the world's highest-profile corporate
chieftans walks such a fine line? Very carefully, or so it appears.
In his remarks at the forum, Cook was quite diplomatic, saying he
was aware there were cases where "everyone hasn't benefited" in the
US-China relationship. (English
article) That's an unsubtle reference to Trump's complaints
about China's large trade surplus with the US.

It also refers to other frequent complaints from Americans and
other foreigners that China's markets are relatively closed
compared with the market access given by western governments to
Chinese companies. China has promised on numerous occasions to open
its markets to level the playing field, but has fallen into the
common pattern of dragging its feet for years without taking
concrete actions.

In his remarks at the forum, Cook gave the rather bland comment
that businesses should engage with governments in the countries
where they do business. He added that all sides should look for
mutually beneficial arrangements where "one plus one equals three."
He has certainly practiced what he preaches, making at least one
trip to China in each of the years since assuming the mantle as
Apple's CEO.

Matter of Choice

In all fairness, Cook has a point. Despite all of the complaints
by foreign companies, nobody has forced them to do business in
China. They are all here because of China's huge market potential,
despite all the barriers that Beijing puts in their way. Government
relations are key to overcoming many of those barriers, which is
something Cook has learned the hard way over the years.

Apple is a good case of a company that has done its best to
navigate all those barriers, and as a result has made good profits
in the market just a decade after entering in earnest. That
navigation has meant lots of bumps along the way, including a
scandal a few years back that tarnished the company's reputation
due to shortcomings in its after-sales service. The company has
also been forced to store all data for China-based users of its
iPhones within China, in response to Beijing's national security
concerns.

Cook's frequent travel to China is no doubt filled with
discussions of such issues behind closed doors, followed by
frequent consultations with his PR team over how to handle
disclosure to the public of sensitive moves. But in the end his
work appears to have borne fruit.

Against that backdrop, the bigger question is whether companies
with far less resources should be forced to jump through so many
hoops in exchange for a chance to successfully do business in
China. The answer really should be "no", considering Chinese
companies have far less obstacles when doing business in America or
other western markets. At the end of the day, I should applaud Cook
for Apple's success in China and his overall approach calling for
regular discussion.

But smaller companies probably don't have the time or resources
to dedicate to such efforts, which is what's driving the broader
frustration being felt by the foreign business community. Until
that issue is addressed, we'll probably continue to see trade
frictions show up as a major issue, keeping people like Tim Cook
caught in a difficult in-between place as they try to refrain from
taking sides.